Don't take RMDs. In this episode, I'm going to address the question,
"What is the biggest mistake made by retirees?"
And you're going to be shocked with what I'm going to tell you because it's usually the opposite
of what they tell you to do on CNBC. They don't know what they don't know. They're a bunch of tax
revenuers. That's why they're telling you to take RMDs. You're going to find out why next.
So, I'm Doug Andrew and I've been helping people optimize their financial assets and prepare for a
comfortable retirement for more than 4 and a half decades. And I get so frustrated every time I see
on CNBC telling people to stretch out their iras and 401(k)s if they don't need the money yet until
they're age 72 and then you have to start taking out the required minimum distribution to avoid a
50% on top of the tax. And so, they say, "Well, just take out the required minimum, RMD." And
I just go, "Ugh, that is the stupidest advice I have ever, ever heard." And you're going to learn
why in this episode. Here's a beginning metaphor. So many people are trying to go down the highway
of life so to speak trying to achieve this destination we call financial independence.
And all too often, they are going down that highway with one foot on the gas pedal and the
other foot on the brake pedal. And they don't even know they're doing it. Now, I would not recommend
you do that when you're driving a car. But this is what people are doing financially. For example,
many Americans are trying to save for their future for their retirement and they're trying to
be responsible and accountable. And they sort of put their head in the sand and they participate in
the company's 401(k)s, the IRAs. These are called qualified plans, okay? Qualified with Uncle Sam.
See, he's going to get his share later. And so, people accumulate their money on a tax-deferred
basis because they think they're going to be in a lower tax bracket when they retire.
But folks, that has not been true or axiomatic for more than 25 years. If you have any type of
a respectable retirement nest egg, most people are in as high or higher tax brackets when they retire
than they were ever in during their earning years. Even if they have less income. Why? It's because
they had the other foot on the brake pedal. They were killing their deductions. Most people pay off
their house. You don't have that deduction anymore when you retire. The kids are gone. So, you don't
have them as deductions. Or if they have moved back home, you cannot claim them as dependents
anymore. Most people are not contributing money to IRAs or 401(k)s in retirement. You don't have
those deductions anymore. If you're a business owner, you don't have those deductions anymore.
And congress keeps raising taxes. So, most people are not in lower brackets. Even with less income,
they have eliminated all the deductions. And the sad thing is
they go through the rest of their retirement years still with one foot on the gas and the other foot
on the brake because they don't know how to get out of the habit. I'm going to show you how. So,
I feel like many Americans are duped into putting money into IRAs and 401(k)s in the first place.
I often use the metaphor of a farmer and the seed that they buy to plant.
See, if you were a farmer and you had the choice of buying your seed in the springtime
and you didn't have to pay tax on what you paid for the seed, okay? And so, you plant the seed,
you irrigate, you cultivate, you work hard until the fall. And you then harvest your
crop. This is retirement, see? And now you agree to pay tax on what you sell your harvest for.
That's a traditional IRA, 401(k). You get a tax break on the seed money. It accumulates
tax-deferred. But then in the fall of life, when you harvest your money, now you agree to
pay tax. And usually, between federal and state taxes a third of it goes out the window in tax.
So, if you have a million dollars saved up in IRAs and 401(k)s, that's not all your money.
Only about 650-700 thousand of that is your money. If you pulled out a 10% a year, 100 grand
a year out of that account, you don't get to keep 100,000. You have to pay taxes on that. You only
have a net of maybe $70,000 to buy gas groceries prescriptions golf green fees and the like.
And so, see, a tax-deferred IRA, 401(k) was originally established based upon the assumption
that you're going to be in a lower bracket when you retire and that has not been true for most
Americans who say very much. That's why they came out with the Roth in 1997 because the government
was hard up for money. They wanted to get their share before people retired. And so, senator Roth
says, "I have an idea. People are getting smart. They're realizing they're not in a lower bracket.
It's better to pay the tax on the seed and enjoy the harvest without tax." He says, "We'll call
this a Roth. After me." And so, they did it for them not for us because that triggered a windfall
of tax revenue for the federal government when people roll their money out of an IRA reform,
okay? They roll it over to a Roth, that triggers tax. I'm not saying it's not a smart thing to do
but they didn't do it primarily for us. They did it for them they were hard up for tax revenue and
they needed to lure us into uh triggering taxing and get the tax paid now because the government
wanted the money now. Now, I've never owned an IRA or 401(k), never will. I've never owned a
Roth IRA, 401(k), I never will because I have a little ditty that goes good, better, best,
never let it rest. Never let it rest how good gets better, better gets best. I want to put my
money in the best place. A Roth is better than an IRA or 401(k), I can prove it. If taxes go up in
the future which most Americans believe they will do, they'll go up, a Roth can generate sometimes a
30 to 40 percent more net spendable income than a traditional IRA, 401(k). Or it will last far
longer where money in a traditional IRA or 401(k) will be depleted, it will be drained
dry in maybe 11 years. I can prove this to you mathematically. And at the end of this episode,
I want you to claim a free copy of my most recent 300-page best-selling book. I'll show
you how to do that and you will see the charts and graphs to explain what I'm talking about. But I
want you to understand that you're not getting a benefit by deferring or procrastinating the tax.
What you want to do is put in after-tax money like a Roth but accumulate your money tax-free,
access it tax-free but do it with higher rates of return and more safety than most Roths have. My
favorite vehicle which I call The LASER Fund the title of the book I'm going to give you,
it has the 2 benefits of a Roth and 4 additional benefits the Roths will never have. So, if this
is already arousing curiosity, share this episode and also search some of the other episodes on this
channel. Subscribe, hit like. I want to empower you. And so, I'm big on education. I've always
liked to help people sort of see the contrast between the darkness of the night so to speak
if they keep putting their money in traditional IRAs and 401(k)s or even Roths. And what that's
going to grow to and then what that is going to do at the end of the day when they retire, how fast
it will be depleted, they will outlive their money because of taxes or because the rates
of return aren't very good there's no flexibility. There that's the problem with qualified plans. So,
I have software that I develop. I think it's the only software that still exists on the planet that
shows people the darkness of the night. How your retirement may not be what you're thinking it's
going to be because you may outlive your money if you keep it in those traditional accounts. That's
the darkness of the night. But then I like to show the contrast of the brightness of the day. The
brightness of your future, how you could live to be 120 and never outlive your money with the same
amount of money but have it be more liquid, safe, earning better rates of return totally tax-free.
This is why I call it The Laser Fund. Laser is an acronym that stands for liquid assets
safely earning returns. So, to illustrate the darkness and brightness, I'm going to share a
story with you about a husband and wife. They were both school teachers. And oh my heavens, we more
than doubled their net spendable retirement income. So, this husband and wife came to me
when they just turned 60 years old, they both taught school for years and they were trying
to be responsible and accountable and so they had accumulated money in their state's 401(k)s,
also 403Bs and they had some TSAs, those are called tax-sheltered annuities. Now, they,
at that time, this was several years ago. They had a quarter of a million dollars saved because
they knew that if they retired, they would only get 60% of the paychecks they had been used to
getting the last 5 years. Because most states for school teachers have defined benefit pensions. And
most of those are based upon years of service. So, if you teach school 30 years, you get 2% for every
year of service. So, that's 60% of the last best paychecks. Now, back then, their average pay was
about $5,000 a month. So, they knew their pension would pay them 3,000 a month. They were making
60,000 a year of school teachers when they were 60 years old. And that was going to go down to 36,000
a year each. And they thought, "How are we going to make ends meet?" So, that's why they socked
away this extra money and then they knew they would have some social security benefits also.
But what happened is what happens to many people, they realize they really didn't need the money
because uh they could live on less... And so, their advisor says, "Oh, if you don't need the
money, you can actually tap into it without a 10% penalty after age 59 and a half. But don't do it.
Keep deferring. And and your quarter of a million will double to a half a million in another 10
years because we think you'll average maybe 7.5%." Well, that's what most people are told to do.
So, it doubles to 500,000. And then they take out income. Because it aged 70 and a half was the age
they had to start pulling it out back then. Now, the government's increased it to age 72. You must
start taking out money out of IRAs and 401(k)s based upon the government's life expectancy
formula. So, if at age 70, your life expectancy is 20 years, you have to take out 120th.
The next year, you have to take out 119th, 118th, you have to take out more and more
because the government wants that money out and taxed before you die so they can tax you again
when you do die. They want their money, they want their piece of that action. They have a permanent
tax lien on your IRAs and 401(k)s. So, I calculated how much if they took out the RMDs,
the rest of their life expectancies and then their children, they were flabbergasted. They
would pay out over a quarter of a million in tax by stringing it out. They went, "Well,
that's 100% of what we have right now. And I said, "Well, yeah. You better hope you earn some money
here. It's going to be awful." They said, "Well, what would you recommend?" I said, "First of all,
let's get it out. Let's get the money rolled out in 5 years. Get the taxes over and done with.
You're not accomplishing anything by putting it off. You're going to pay it sooner or later.
So, let's get it over and done with." So, what we did is we pulled out 60,000 a year
over 5 years. That was 300,000 because I was growing their money by where I repositioned it.
So, they paid 12,5000 a year in tax in 5 years and their taxes were all done. Wait a minute,
what did I do with the after-tax money? They didn't need it. I repositioned it into my
favorite financial vehicle the Laser Fund that's totally tax-free. They don't need to worry about
taxes anymore. They reduced their tax liability from 250,000 down to 60,000. Then I did some tax
planning with them. Resurrected some deductions on some of their rental income real estate.
And we were able to reduce the taxes down to 20,000 down to zero. At the end of 5 years,
they repositioned their money, 300,000 with no tax consequence. 300,000 is generating more than
double the net spendable income that they would have realized had they left it in IRAs or 401(k)s
even if it doubled to 500,000 and then had to pay tax. Folks, we were able to accomplish far more by
getting it out of there. So, my advice is to do a strategic rollout. Here's how you can learn more.
So, if this is arousing curiosity and you want to see... If you ought to be doing a strategic
rollout not a rollover, a rollover is like going from the frying pan the fire as far as
I'm concerned. Taking money out of 401(k)s and putting it into IRAs and continuing to defer.
Don't take RMDs. Get the money out, get the taxes over and done with reposition the money to
something that's going to be tax-free from now on. My favorite vehicle which is called The LASER Fund
the title of my most recent 300-page best-selling book will show you how you can do that and
increase the liquidity safety and rate of return. Because laser means liquid assets safely earning
returns. And you can read the story of these school teachers plus several other stories on this
side. This contains 12 chapters with all kinds of stories of actual clients that we have empowered
to be able to dramatically increase their net spendable income. And you'll see the brightness of
your future versus the darkness if you keep doing what you're doing when you get your a-has reading
this book. So, go to laserfund, (L-A-S-E-R) laserfund.com and you contribute a nominal amount
towards the shipping and handling. I'll cover the rest and I will fire out a copy of this book for
you and here's to your future education and not outliving your money during your golden years.